November 2008

America waded deeper into bureaucratic manure on Tuesday with the unveiling of yet another bailout acronym. This one goes by the letters TALF, which in case you haven’t heard, stands for Term Asset-Backed Securities Loan Facility.  Unlike TARP (Troubled Asset Relief Program), which was a bailout “facility” for banks and other institutional lenders, this one is mainly for consumers. “As the economy is turning down,” explained Treasury Secretary Paulson, “it is very important that lending be available to consumers.”  It seems not to have occurred to the man that perhaps consumers are not in a borrowing mood, even on such blithefully easy terms as the Government might wish to provide.

The price tag for this latest acronym? A reported $800 billion. But, hey, who’s counting? If that number is correct, and if you toss in the Citigroup “rescue” surreptitiously tacked and glued into place over the weekend, it’s been a pretty expensive few days for taxpayers.  Citi will get $20 billion in up-front money so that the company can maintain payroll, but another $306 billion in portfolio assets will also receive blanket guarantees from the Government.

Helicopter Money

Concerning TALF, if its purpose is to rain down helicopter money on America, the chopper reportedly won’t even be airborne until February. The initial plan is for the New York Fed to extend up to $200 billion in non-recourse loans to holders of asset-backed securities backed by highly rated consumer and small business loans. This is not a bad idea as far as bailout concepts go, since it is designed to help liquefy a lending niche that so far has somehow managed to survive on its own.  But that doesn’t mean the niche has room to grow, or that it will even be viable come February. Our guess is that by then even the hardiest of consumers and small businesses will be in survival mode, borrowing only for the most urgent concerns.

Meanwhile, the overlapping of one rescue package with another has made it extremely difficult to calculate how much the Government will be obligated to shell out. We’ve seen estimates ranging up to $7 trillion, but even the high-end guesses don’t attempt to reckon what it will eventually cost to bail out “the system.” Tragically, even the trillions of dollars now being injected into the banking system and the economy will be insufficient to counteract a debt deflation that has already destroyed more than $50 trillion of global assets, including $38 trillion in the equity markets. If there is a bright spot �’ for debtors, most assuredly, not lenders �’ it is that we’ll never be able to redeem the Government’s promises in real money. (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.

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Last Class in 2008

Because the November 5-6 Hidden Pivot Seminar was sold out, we will be offering the class again on December 3-4 for $1150. The fee includes entry to weekly tutorial sessions for an entire year. For more information, click here.

After turning in a sizzling performance in recent days, gold faces a crucial test not far above. The precise number to watch is 877.70, an important “Hidden Pivot” resistance that lies exactly $57.30 above yesterday’s Comex settlement price for the December contract. Although 877.70 is our minimum expectation for the near-term, the pivot could also stop the rally cold. On the other hand, if the futures should get past it �’ and, better yet, do so with relative ease — that would suggest more strength is coming, perhaps the booster stage of a decisive thrust past $1000.

We’ll be monitoring the action at 877.70 closely in any event, since the amount of stopping power this Hidden Pivot displays can tell us how much buying power is still percolating beneath the surface. If the resistance is bulldozed into oblivion mere minutes after first being touched, that would strongly imply that a move to $1000 is likely for this rally cycle, which began on October 24 from $688. 90. (If you’d like to see the trading touts that went out to paid subscribers yesterday, click here and then on the image itself.)

One reason we think 877.70 will prove crucial is that this number is tied to both of the analytical methods we use: Hidden Pivots and Morge Median lines. In this instance, the two methods have produced an identical rally target (although the Morge number will migrate gently higher as the days go by). The graphic above, for Comex December Gold, shows both methods merged on the same Ensign daily chart. The blue lines represent three tines of a pitchfork whose median-line comes in now at exactly 877.70. The diagonal green lines represent a Hidden Pivot ABCD pattern, but with a twist: Instead of starting the pattern at the usual point ‘A’ low, we have backed up to the countertrend segment that precedes it. We’ll spare you the technical rationale for this, but suffice it to say, the Hidden Pivot target works out to 877.70 — precisely the same as the median line. Together, these coincident targets have begun to exert a magnetic pull on December Gold that all but guarantees it will get there, and soon. But the targets also possess double stopping power, and that is why an easy move through them would be a very bullish sign.

Too Late to Save Debtors

It’s by no means a done deal, although the reasons for gold’s burst of strength are so obvious as to require only minimal explanation. With last weekend’s furtive “rescue” of Citigroup, the U.S. raised the threshold of its willy-nilly guarantees to something approaching $4.6 trillion. Any imbecile (CNBC guests excepted) can smell a hyperinflation down the road and a day of reckoning for the dollar. However, for the time being, deflationary forces are far more powerful globally, having already destroyed an estimated $52 trillion worth of assets, including stocks, bonds and real estate. Moreover, deflation has caused a fundamentally worthless dollar to act strong simply because debtors, unable to keep rolling their loans, are being forced to settle up in cash.

The artificially strong dollar has kept a lid on bullion quotes, but if gold is indeed about to blow past $1000, it would suggest that investors are looking beyond debt deflation toward the inevitable destruction of the dollar. We still believe it will come too late to save debtors, who would of course benefit if their homes were to increase in value to, say, a quadrillion dollars. But if gold were to break decisively above $1000 even as deflation continues to crush nearly all other classes of assets, we’d infer that perhaps those $10,000-an-ounce estimates broached by some celebrated gold bugs are not so farfetched after all. (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.

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Last Class in 2008

Because the November 5-6 Hidden Pivot Seminar was sold out, we will be offering the class again on December 3-4 for $1150. The fee includes entry to weekly tutorial sessions for an entire year. For more information, click here.